Thursday, March 10, 2011

The Spanish government is to start taxing online gaming which has up until now got off extremely lightly. Do they risk driving the industry underground or offshore?

The Spanish Gambling Act pulls no punches and covers all forms of online gaming: poker, bingo, sports betting and football pools. Considering that these activities have not formerly been taxed at all, the proposed tax rates are extremely punitive. The rates vary between 10% (for poker played between individuals) and 30% for certain sweepstakes. Most activities are taxed at 20% of the gambler's stake.

The online gaming industry is most upset that these rates apply to the GROSS amounts wagered; they had lobbied for a tax only on net income after winnings had been paid out. The government turned a deaf ear to their requests (Internet gambling must also pay tax) more concerned about the loss of an estimated 315 million € tax than the feelings of the profitable website owners.

Of course the move could backfire in more ways than one. Experience of other countries, including Britain, shows that taxing online gambling portals drives the business offshore to places like Gibraltar. Also the government risks gaining a reputation for being "anti gambling" or "anti business" just when a big new casino investment is being proposed: Sands bonanza likely to prove a mirage.

What is it with governments these days? Can they not see that the correct way to deal with deficits is spending cuts and not tax increases. If tax levels were not sky high to begin with I could see the sense in it perhaps, but at the actual levels we have in the West most tax rises (certainly on incomes and corporations) is bound to prove counterproductive i.e. reduce revenues by destroying economic activity. As the UK government is now discovering with the 50% tax band and the "fee" on non doms which is driving away taxable wealth from Britain every day.